Lately, I've been inspired by Howard Marks and his wonderful book: "The Most Important Thing." In it, the famed investor discusses the importance of “2nd level thinking,” the ability to think differently than the market to find trends.
This type of thinking is essential in finding the mega trends of tomorrow, today; which is the stated goal of this investor and should be yours too. Doing so, allows us to be big winners without picking the perfect stock (think "internet" in 95’).
Second level thinking starts with a simple question: what will tomorrow look like?
Here’s a funny and mistaken first level though, followed by its more astute 2nd level counterpart.
1st level: Linkedin Corporation (NYSE:LNKD) is an overvalued “social media” site. With a forward P/E of 76.78, it’s likely that this fad stock will come crashing down soon.
2nd level: LinkedIn’s biggest opportunity lies in the growth of an opportunity few see. They will eventually fully exploit it and the multiple will shrink.
The LinkedIn opportunity I’m bullish on is their involvement with the recruitment services sector, yep—7% unemployment and all.
Prior to the recession of 2007 businesses feared a coming skilled labor shortage, as the baby boomers set to retire all while the world was becoming less skilled. Even with 7% unemployment, did you know that 60% of U.S. companies reported an inability to fill open positions last year?
Almost all employers in the survey reported a lack of "hard skills" or education as the reason for their vacancy. A Pharmacist or an Engineer for instance are currently experiencing unemployment rates below 3%, above full employment levels. The skilled labor shortage is here, and will accelerate in years to come.
*sources Wall Street Journal and Reuters
That’s where LinkedIn comes in
On the heels of yet another, blowout quarter with earnings coming in at .35c/share (vs. .19 expected), the stock has soared over 20%.
While their marketing solutions business was up 68% and premium subscriptions were up a staggering 79%, recruiting presents the best growth catalyst.
LinkedIn has been at a bit of a crossroads with its recruiting services. The company offers services that are essential in bringing headhunters and skilled candidates together, but they don't always see the fruit of their labor.
That’s because recruiters are currently able to post jobs in targeted, candidate specific groups for free; this creates a drag on revenue that should go to LinkedIn’s general job board. These postings, are far more expensive than most LinkedIn products so it’s vital they do not continue to let this cash slip away.
So why am I bullish on LinkedIn recruiting? Well, despite their “job posting woes” LNKD’s recruiting service revenues still rose a staggering 90%. The primary reason was price increases for recruiting software tools, which had previously been a concern.
This progression gives me faith that, at some point, LinkedIn will start charging users at least a nominal fee for the job postings that go in “groups” sections. Any improvement in this area, coupled with the fact that LinkedIn has no real recruiting competitors for its other recruiting services could send the stock to another level.
187 million subscribers certainly gives them time to figure it out, when they do—look out. I’m hoping to buy this stock on any reasonable pullback.
One scary Monster
1st level: “considering those bullish recruiting numbers, let’s buy Monster Worldwide, Inc. (NYSE:MWW) :. The stock is cheap”
2nd level thought: Seriously?
While it’s true that 83% of candidates consider job boards as their primary job search tool, they’re typically searching on Monsters chief competitor—Careerbuilder.com.
It’s funny, at the company’s inception they’d hoped the word “Monster” would be synonymous with a job search, much like “Google Inc (NASDAQ:GOOG)” or “Kleenex” are for searching and snots. But Management has never showed a strategy to grow brand identity in practice; instead they’ve embarked on one lame copycat effort after another.
Management tends to blame poor results on “the economy” because they know it’s an easy target but why then, is nearly every other business in the recruiting services sector thriving?
In just 2012 alone Monster: “imitated” CareerBuilder’s successful source and screen service, when that didn’t work they purchased HotJobs and when that failed they gave a “half-in” attempt to jump on the in social media trend. That social media application (Be-Known) runs through Facebook Inc (NASDAQ:FB) and has a stated goal to "allow people to connect professionally on Facebook Inc (NASDAQ:FB) without mixing business with friends".
If the goal was to “be the only social media platform that no one in the world has heard of,” they’d be knocking it out of the park. Since it’s not, they look like they’re throwing spaghetti at the wall.
The good book
1st level: Facebook Inc (NASDAQ:FB) users are suffering “Facebook fatigue”
2nd level: “Facebook fatigue” is an opportunity
With 1 billion users, Facebook could potentially dominate the world of online recruiting services. “Be-Known” is a dud but at least it shows that the Facebook Inc (NASDAQ:FB) has identified the potential growth in this area.
A recent study showed users are feeling “Facebook fatigue” with 61% of users saying they recently took time off of Facebook and 27% planning to decrease usage. Mr. Market has also showed fatigue with FB, despite beating earnings estimates for two straight quarters the stock has stayed range bound ($20-$30). They need a “wow” moment.
The largest reason for the fatigue was that Facebook was not useful enough; a smart job search tool could change that.
They should consider an acquisition, one with a mutually beneficial relationship through independent brands (think eBay and PayPal). Debt has doubled (yoy) but so has cash, the company could afford a small buy (perhaps Workday) that would boost growth while keeping its brand insulated.
2nd, is the new 1st
With headhunters and candidates constantly seeking better, more effective tools; few industries are as influenced by emerging technologies as recruiting services. The online recruiting sector is a long-term mega trend, get on the right side of it—and hang on!
The article LinkedIn, Facebook and the "2nd Level" originally appeared on Fool.com and is written by Adem Tahiri.
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